Hi, this is Wayne again with a topic “How Reddit gamed the stock of GameStop”.
So by now you have probably seen that parts of the stock market have been thrown into utter chaos. Gamestop american airlines, gamestop stock has been on a wild ride, amc two and by the time you’re watching this, any number of random mall chains may have had their stock sent rocketing up by an organized group of day traders hanging out on a subreddit called our wall Street bets somehow, during the pandemics stocks became a meme now redditors and wall street jumping in behind them have moved so much money so quickly that it’s already gotten the attention of the new treasury secretary to understand how you have to look at the big picture. Okay, so, let’s start by explaining how this all began we’re all home and bored during the pandemic. Now some of us started baking our own bread about this, but other people started day trading before the pandemic.
A bunch of online brokerages got rid of trading commissions, so it was a lot cheaper for retail investors. That’S people like you and me to trade stocks. In fact, last year was a record for volume and retail trading.
Now gamestop has been losing money and a reliable cash register for people who bet against it. For years its stock usually goes down after its earnings. They do this by shorting stocks. There’S sort of a technical explanation for how this works, but basically they’re just betting on the stock going down.
One thing that does happen, though, is that if you’re shorting a stock you’re exposed if the stock goes up a lot, in fact, your losses are theoretically infinite. On our wall street bets about a year ago, a user suggested that gamestop was undervalued and in fact it became a joke that our wall street bets would take over gamestop and then suddenly it wasn’t a joke. So that’s how it started. Here’S how it’s going! There’S a way doing options trading that you can force the stock up, which makes the shorts cover their positions and the free online trading platforms such as robinhood. Although i want to be very clear, not exclusively robinhood make this possible buying, gamestop calls suddenly became a meme, and people began to coordinate in a way retail traders hadn’t ever before.
Meanwhile, on reddit, a bunch of people are demanding lost porn, which is when you post your losses and point out all the ways that professionals have manipulated the market. They see this as comeuppance. I just want to be clear with you guys, though there are rich people on both sides of this trade, and some rich people are just getting richer. Meanwhile, several online brokerages have limited the trading on the stocks that the redditors target. Now their editors are big mad. So what’s next honestly, i don’t know – and probably a bunch of things have changed between us filming this and you seeing it so we’ll find out. But when you combine all the new people who are bored and doing day, trading social networks and memes, there’s a powerful new force in the market, one that’s being amplified by existing players on wall street. In fact, this is basically wall street finding out what an internet mob is capable of, and it’s probably also going to end in tears. I mean gamestop is an open pump and dump. None of the fundamentals have changed. The stock is going up because we’re in the pump and there’s a really obvious next step, the dump we just don’t know when it will happen.
The other thing that’s likely is regulation. I mean we talked earlier about how the treasury secretary is already paying attention. The sec has put out a statement, saying they’re paying attention and we have lawmakers talking about this on twitter, notably both democrats and republicans. You’Ve got ted cruz, alexandria, ocasio-cortez and rokana all saying that they want to review this and see if there are changes that need to be made.
To sum up, i think that a new source of uncertainty has been injected into the markets and right now, they’re more. Like a casino than ever, what have we learned? Well, a lot of people got an education on how the stock market works and wall street got an education on how online mobbing works and the internet learned a new skill that it’s probably going to repeat and there’s probably a lesson here. If i know what it is, look, as i said earlier, a lot of things have probably happened between us recording in this article and us uploading this video, because this story is moving really fast. If you want to be totally up to date on, what’s going on, you can check out our website theverge.com .